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The Fed and the State of Interest Rates

The Hershman Group reports today that the start of a new year is a good time to reflect as we previously have on the state of jobs and real estate. Another important factor we are monitoring is the movement of interest rates. There is no doubt about the fact that one benefit of our very slow and steady recovery from the Great Recession has been incredibly low interest rates. These rates have made homeownership and other large purchases such as cars more affordable for tens of millions of Americans. In addition, these rates have spurred millions of Americans to refinance their home loans, which has provided another boost for the economy.

Even as the recovery has moved forward and the unemployment rate has moved down near pre-recession lows, rates have stayed low. As a matter of fact, Freddie Mac has reported that last year, rates on home loans were the lowest in the history of their survey. The previous low of 3.66% was also post-recession in 2012. Just to give a perspective, rates on 30-year fixed loans averaged approximately 6.0% in the years before the recession and during the first part of the recession. And before the real estate boom at the turn of the century, rates averaged in the 7.0% range.

Since the election, rates have moved up from their record lows to just over 4.0% on 30-year loans. Where they will go from here is a complete mystery. Most analysts predict they will move upward from here, but analysts have been known to be wrong. Here is a point to consider. If rates stay where they are today, they will be the lowest in history, save for a few months in the previous few years. This means that getting a loan is still a bargain. And even though the Federal Reserve Board is meeting this week, their actions are not expected to change things at the present time. Thus, we can continue to enjoy the good times -- for now.